Market Overview

Walter Energy Sees Sharp Rise in Short Interest

Walter Energy Sees Sharp Rise in Short Interest

The short interest in many coal-related stocks increased between the April 15 and April 30 settlement dates. But the largest upswings in short interest happened to Alliance Holdings (NASDAQ: AHGP), Alpha Natural Resources (NYSE: ANR) and Walter Energy (NYSE: WLT).

The number of shares sold short in Alliance Resource Partners (NASDAQ: ARLP), Cloud Peak Energy (NYSE: CLD), CONSOL Energy (NYSE: CNX), Peabody Energy (NYSE: BTU), Rhino Resource Partners (NYSE: RNO), Westmoreland Coal (NASDAQ: WLB) and Yanzhou Coal Mining (NYSE: YZC) also swelled somewhat in the period.

However, short interest in James River Coal (NASDAQ: JRCC) was essentially flat during that period, while shares short in Arch Coal (NYSE: ACI) and SunCoke Energy (NYSE: SXC) declined a little more than 10 percent.

Alliance Holdings

Shares sold short in this producer of coal primarily for utilities and industrial users increased about 18 percent to more than 167,000, on top of a seven percent rise in the previous period. But the days to cover fell to less than three. The short interest at the end of the month was a little more than one percent of the total float.

This Tulsa, Oklahoma-based company has a market capitalization of about $3.6 billion and a dividend yield near 5.1 percent. It posted better-than-expected results for the most recent quarter. The long-term earnings per share (EPS) growth forecast is about 14 percent. The return on equity is more than 47 percent.

Four analysts who follow the stock were surveyed by Thomson/First Call. Two recommend buying shares and two recommended holding them. But the share price has overrun the analysts' mean price target. Until individual price objectives are raised, the consensus is that there is no upside potential at this time.

The share price jumped more than 11 percent following the first-quarter report to a new multiyear high, but it has pulled back about two percent since. Over the past six months, the stock has outperformed competitors Arch Coal and Peabody Energy, as well as the Dow Jones Industrial Average.

Alpha Natural Resources

Short interest in this Virginia-based company increased about 13 percent in the period to about 33.01 million shares. That was on the second lowest daily average volume in at least a year, and the number of shares short represented about 15 percent of the company's float. Days to cover rose to more than three.

The metallurgical coal producer posted a wider net loss for the first quarter, though the loss was smaller than analysts had expected. Alpha Natural Resources has a market cap near $1.6 billion, but it does not offer a dividend. Note that the company's operating margin and its return on equity are both in negative territory.

The consensus recommendation of the surveyed analysts is to hold the shares, and that has been so for at least three months. Their mean price target, or where analysts expect the share price to go, is more than 28 percent higher than the current share price. However, that target is well below the 52-week high reached about a year ago.

The share price dropped to a year-to-date low last week, and it now is almost 47 percent lower than a year ago. However, the stock has outperformed those of competitors Arch Coal and Peabody Energy over the past six months, even though it underperformed the broader markets.

Walter Energy

This Birmingham, Alabama-based producer and exporter of metallurgical coal for the steel industry saw short interest jump more than 26 percent in late April to about 12.05 million shares. That was more than 19 percent of the float and the largest number of shares sold short in the past year. But the days to cover remains less than two.

Walter Energy was the subject of takeover rumors in April, and it succeeded in a contentious board election over an activist investor. The company currently has a market cap of more than $1 billion and offers a dividend yield of about 2.9 percent. Here too the operating margin and the return on equity are both in the red.

Again the consensus recommend is to hold shares, though 10 of the 24 polled analysts say to buy. The analysts' mean price target suggests more than 35 percent potential upside relative to the current share price. That target is much less than the 52-week high, though.

The stock fell to a multiyear low in late April, and the share price is still down more than 47 percent since the beginning of the year. Walter Energy has underperformed the likes of CONSOL Energy and Westmoreland Coal, as well as the broader markets, over the past six months.


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